Melrose reports strong 2024, outlines five-year targets

(Sharecast News) - GKN owner Melrose Industries reported a strong 2024 financial performance on Thursday, with revenue rising 11% to £3.47bn and adjusted operating profit increasing 38% to £566m. The FTSE 100 aerospace technology group recorded a 42% increase in post-PLC cost operating profit to £540m, while profit before tax rose 36% to £438m.

Adjusted diluted earnings per share grew 45% to 26.4p, supporting a 20% increase in the total dividend to 6p per share.

The company's net debt increased to £1.32bn, from £572m in 2023, resulting in a leverage ratio of 1.9x, in line with its target range of 1.5x to 2.0x.

Free cash flow turned positive in the second half of the year, with £71m generated after interest and tax.

The engines division saw revenue climb 26% to £1.46bn, with adjusted operating profit rising 40% to £422m, driven by strong aftermarket growth in defence and repairs.

It said its engine risk and revenue-sharing partnerships contributed £274m in variable consideration.

Melrose also continued its investment in additive fabrication technology, advancing commercial discussions with all major engine OEMs.

The structures division meanwhile reported more modest revenue growth of 3% to £2.01bn, with adjusted operating profit reaching £144m.

Margins improved to 7.2% from 5.1% in 2023, supported by restructuring benefits and business improvements.

The firm completed three non-core disposals and progressed defence contract repricing, with 61% completed and an 85% target set for the end of 2025.

Melrose reaffirmed its guidance for 2025, forecasting revenue between £3.55bn and £3.70bn and adjusted operating profit of around £700m, reflecting an operating margin above 19%.

Free cash flow generation is expected to exceed £100m as the company nears completion of its restructuring programme.

Looking ahead, Melrose said it had also set five-year targets including revenue of about £5bn by 2029, adjusted operating profit exceeding £1.2bn, and free cash flow of £600m.

The company said it expected to maintain leverage below 2x while increasing capital allocation flexibility, potentially including share buybacks.

"Melrose delivered a strong 2024 performance driven by robust industry demand, ongoing aftermarket growth and the impact of extensive business improvement actions," said chief executive officer Peter Dilnot.

"This was achieved against the backdrop of ongoing industry-wide supply chain issues.

"We are well positioned for further progress in 2025, including the expected delivery of substantial free cash flow, despite ongoing industry challenges."

Dilnot said the company was also "excited" to launch its five-year targets, including more than 20% annual earnings per share growth through the period and free cash flow generation of £600m in 2029.

"Our confidence in future growth is underpinned by market leading technologies and established positions on all the world's major aircraft."

Reporting by Josh White for Sharecast.com.